2a_Competition

2a_Competition - Power of Rivalry Economics of Competition...

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Nile W. Hatch © 2002 – 2008 ManEc 387 Economics of Strategy Power of Rivalry Economics of Competition and ProFts 1
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Nile Hatch © 1996 – 2008 Exploring Industry Structure Threat of Potential Entrants Bargaining Power of Suppliers Rivalry between Competitors 2 Customer Preferences Threat of Substitutes 2
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Nile Hatch © 1996 – 2008 The Threat of Rivalry • Rivalry is the threat that Frms will compete away their proFt margins. This occurs through Price competition – ±requent introduction of new products – Intense advertising campaigns – ±ast competitive response 3
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Nile Hatch © 1996 – 2008 Sources of Increasing Rivalry • Large number of competing Frms of similar size ( unconcentrated ) • Lack of product differentiation • Slow industry growth • ±ixed costs are a signiFcant fraction of total costs • Productive capacity added in large increments • Exit barriers 4
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Nile Hatch © 1996 – 2008 Market Structure and Performance • The greatest threat to performance is for rivals to dissipate economic proFts through price competition. • Different market structures represent different levels of expected price competition: Market Structure Intensity of Price Competition Perfect Competition ±ierce Monopolistic Competition May be Ferce or light depending on the degree of differentiation Oligopoly May be Ferce or light depending on the degree of interFrm rivalry Monopoly Light unless threatened by entry 5
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This note was uploaded on 04/22/2011 for the course MANEC 387 taught by Professor Crawford,l during the Fall '08 term at BYU.

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2a_Competition - Power of Rivalry Economics of Competition...

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